The New Jersey Appellate Division held in a surprising decision that a retail-branded credit card was time barred by its four year statute of limitations for the sale of goods.
Trial Court Applied Six Year Statute
A debt buyer filed a complaint in July 2012 to recover a defaulted store-branded credit card. The debtor counterclaimed under the Fair Debt Collection Practices Act arguing that the purchases she made with her card represented the sale of goods and since she defaulted in August of 2006, the debt buyer’s claim was time barred by New Jersey’s Uniform Commercial Code Article 2-725. The trial court disagreed and applied the six year statute of limitations holding that the claim was based on a credit card debt and not a sale of goods.
Appellate Court Says Suit Time Barred
In reversing the trial court, the Appellate Division cited to two cases involving retail installment contracts for the purchase of automobiles. In those cases, the motor vehicles were purchased from dealers and the installment contracts were then assigned to third parties. In both cases, the court held that the contracts were for the purchase of goods and applied the four year statute of limitations for the sale of goods. The Appellate Division said that because the consumer could only use the card to purchase furniture at that store for which the credit card was branded, the contract was one for the sale of goods. The opinion does not indicate if the store itself provided the financing or if the financing was provided by a third party.
Finally, the Appellate Division remanded the matter to the trial court to consider whether (1) the complaint was in fact time barred and (2) whether the collector “knew or should have known that the claim was time barred when it initiated the lawsuit.” The requirement of the second factor may be reference to a potential bona fide error defense.
Because of its reliance on automobile financing to support its holding, the decision’s rationale is questionable. A typical automobile purchase financing transaction has the automobile dealer as a party to the financing contract. The purchase financing contract is then immediately assigned to a creditor. This is not the case with store-branded credit cards where the retailer is not a party to the financing transaction and the creditor extending the financing does not take an assignment from the retailer.